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Railroad!expansion!and!entrepreneurship:!evidence!from!Meiji!Japan!
John!Tang*!
The!Australian!National!University!
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July!2013!
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Abstract!
Railroads!in!Meiji!Japan!are!credited!with!facilitating!factor!mobility!as!well!as!access!to!human!
and!financial!capital,!but!the!impact!on!firms!is!unclear.!Using!a!newly!developed!firmHlevel!
dataset!and!a!differenceHinHdifferences!model!that!exploits!the!temporal!and!spatial!variation!of!
railroad!expansion,!I!assess!the!relationship!between!railways!and!firm!activity!across!Japan.!!
Results!indicate!that!railroad!expansion!corresponded!with!increased!firm!activity,!particularly!
in!manufacturing,!although!this!effect!is!mitigated!in!less!populous!regions.!!These!findings!are!
consistent!with!industrial!agglomeration!in!areas!with!larger!markets!and!earlier!development!
among!both!new!and!existing!establishments.!!
!
Keywords:!agglomeration,!entrepreneurship,!firm!genealogy,!late!development!
!
JEL!classification:!L26,!N75,!O53
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*!Research!School!of!Economics,!The!Australian!National!University,!LF!Crisp!Building!26,!Acton!ACT!0200!
Australia.!EHmail:[email protected];!office:!+61!2!6125!3364;!fax:!+61!2!6125!5124.!!!The!author!
thanks!Tim!Hatton,!Jeff!Williamson,!and!Ann!Carlos!as!well!as!seminar!participants!at!the!Universitat!de!
Barcelona,!University!of!Oxford,!the!London!School!of!Economics,!the!University!of!Otago,!and!the!
University!of!New!South!Wales!and!participants!at!the!Asian!Historical!Economics!Conference!for!useful!
comments.!!This!research!is!supported!by!grants!provided!by!the!ANU!College!of!Business!and!Economics!
and!the!Australian!Research!Council.!
! 1!
I.!Introduction!
One!of!the!foreign!inventions!Commodore!Matthew!Perry!brought!with!him!on!his!visit!to!
Japan!in!1854!was!a!miniature!steam!locomotive!that!ran!on!a!mileHcircumference!track.1!!
Curious!onlookers!were!impressed!not!only!by!the!novelty!of!the!design,!but!especially!with!its!
rapidity:!one!impromptu!rider!sitting!atop!the!train!“clung!with!a!desperate!hold!to!the!edge!of!
the!roof…!and!described!the!experience!`as!though!it!were!flying.’”2!!Eighteen!years!and!a!
revolution!later,!the!Meiji!emperor!opened!the!country’s!first!railway!between!Tokyo!and!
Yokohama,!which!cut!the!dayHlong!journey!by!foot!to!less!than!an!hour!by!train.3!
Among!the!many!technological!and!institutional!changes!sweeping!Japan!in!the!late!
nineteenth!century,!the!railroad!has!been!credited!with!a!leading!role!in!promoting!
industrialization!and!economic!growth4.!!This!premise!is!consistent!with!the!benefits!of!
improved!transportation!infrastructure,!which!include!lower!transit!costs,!market!integration!
and!expansion,!and!intersectoral!linkages.5!!Casual!observation!of!Japan's!economic!
performance!seems!to!corroborate!this!view:!between!1872,!when!the!country's!first!railway!
was!completed,!and!1907,!when!the!government!nationalized!the!industry,!national!income!
tripled!in!real!terms.6!!During!this!same!period,!the!domestic!rail!network!expanded!from!29!to!
7,152!kilometers;!the!number!of!locomotives!from!10!to!1,924;!and!annual!passengers!carried!
from!495,000!to!101!million.7!
Correlation,!however,!is!not!causation,!and!studies!ascribing!a!causal!link!between!
railroads!and!economic!development!have!typically!relied!on!counterfactual!comparisons!of!
social!savings!or!indirect!measures!of!economic!activity!like!population!growth.8!!Less!clear!are!
how!the!arrival!of!the!railway!directly!affects!entrepreneurs!and!industries!or!how!these!would!
have!behaved!differently!in!the!absence!of!locomotive!technology,!especially!for!countries!that!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1!This!was!not!the!first!train!seen!in!Japan;!the!previous!year!a!Russian!envoy!demonstrated!locomotive!
technology!aboard!his!ship,!but!the!model!was!smaller!in!scale!and!viewed!by!many!fewer!(Free,!2008,!p.!
22).!
2!Ericson!(1996),!p.!4.!!This!is!echoed!in!contemporary!newspaper!accounts,!which!stated!that!"'[t]he!
railway!train!will!be!as!fast!as!the!wind!or!a!cloud.!!Without!such!a!miraculous!device!it!would!be!
impossible!for!a!human!being!to!do!a!thing!like!this!unless!he!possessed!the!wings!of!a!bird";!in!Nagao!
(1929),!p.!5,!quoting!from!the!6!September!1872!issue!of!Nichi%Nichi%Shimbun.!3!Free!(2008),!pp.!11!and!85.!
4!Lockwood!(1954)!writes!that!unlike!western!countries,!railroads!allowed!Japan!to!"[gain]!the!economies!
of!a!national!system!almost!at!the!outset"!and!that!they!"facilitated!a!geographic!extension!of!the!internal!
and!external!market!by!lowering!the!cost!of!moving!goods!and!people"!(p.!106).!!See!also!Crawcour!
(1997),!pp.!58H61,!and!Ericson!(1996),!pp.!31H32!and!52.!
5!Rostow!(1960),!chapter!4.!6!Data!from!Maddison!(2003).!!Official!Japanese!data!provide!nominal!income!series!starting!in!1875,!
which!indicate!a!sixHfold!increase!by!1907;!see!Japan!Statistical!Association!(1987),!series!13H3,!Yamada!
estimates.!!!
7!Ibid.,!series!8H4,!8H6,!and!8H14.!!Historical!data!begin!in!1886!for!freight!traffic,!which!grew!from!426,000!
tons!to!18,605,000!in!1907!(series!8H15).!
8!Classic!studies!include!Fogel!(1964)!and!Fishlow!(1965),!while!Atack!et!al!(2009)!and!HerranzHLoncan!
(2011)!are!more!recent!examples.!
! 2!
may!have!wellHdeveloped!shipping!transport!links!like!Japan.!!This!uncertainty!is!in!part!due!to!
a!lack!of!historic!firmHlevel!data!as!well!as!difficulty!in!finding!appropriate!analogues!with!which!
to!compare!economic!outcomes.!
Another!factor!to!consider!is!that!railroad!access!may!have!differential!consequences!on!
the!connected!locations!themselves.!!While!railroads!may!increase!economic!activity!for!the!
macroeconomy,!economic!geography!suggests!that!agglomeration!forces!can!draw!business!
activity!away!from!newly!accessible!areas!(aka,!periphery)!toward!already!established!
manufacturing!centers,!and!thus!mitigate!potential!economic!gains!in!the!former.9!!This!
theoretical!prediction!would!seem!to!apply!to!Meiji!Japan,!where!there!were!already!large!
disparities!in!population!and!commerce!between!major!cities!like!Tokyo!and!Osaka!and!the!
more!remote!prefectures.!Taking!account!of!differences!between!regions!may!clarify!the!
distributional!effects!of!the!railroad!and!other!spatially!oriented!technologies!at!a!country's!
early!stage!in!development.10!
The!aims!of!this!paper!are!twofold:!to!examine!the!railroadHgrowth!relationship!through!
the!lens!of!firm!activity;!and!to!highlight!the!variable!effects!of!railway!access!across!industries!
and!regions.!!The!research!design!uses!a!newly!developed!firmHlevel!dataset!drawn!from!
corporate!genealogies!and!a!differenceHinHdifferences!methodology!that!exploits!the!variation!in!
the!timing!of!railroad!network!expansion!across!Japanese!prefectures.!!The!genealogies!
comprise!one!of!the!oldest!sources!of!Japanese!establishment!data!across!the!industrial!
spectrum,!thus!providing!a!more!representative!view!of!microeconomic!activity!than!that!based!
on!government!records!and!case!studies!of!major!firms.11!!The!empirical!analysis!compares!firm!
activity!in!regions!before!and!after!they!gained!railroad!access!while!controlling!for!regions!that!
did!not!experience!a!change!to!their!transport!technology.!!Furthermore,!by!including!
prefectural!population!as!a!measure!of!market!size,!one!can!separate!the!general!effects!of!
railroad!expansion!on!firm!activity!from!those!due!to!agglomeration!and!provide!a!simple!test!of!
the!theoretical!predictions!from!economic!geography.!!
Results!indicate!that!railway!access!had!a!small,!but!positive!impact!on!entrepreneurship!
across!prefectures!in!general.!!Furthermore,!firm!activity!differed!between!industries!following!
the!arrival!of!the!railroad,!with!manufacturing!enterprises!(in!particular,!textiles)!increasing!
more!rapidly!as!well!as!shifting!toward!more!populated!locations.!!This!finding!is!consistent!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9!Krugman!(1991a).!Using!Spanish!industrialization!as!an!example,!Krugman!(1991b)!writes!that!
depending!on!how!much!transport!costs!decrease,!"over!some!range!closer!integration!actually!leads!
production!to!move!perversely!from!the!point!of!view!of!comparative!cost"!and!he!concludes!that!
"railroads!and!steamships!led!to!deindustrialization!of!the!periphery"!(pp.!97H98).!!This!point!has!been!
refined!more!recently!with!the!distinction!of!original!(climate)!and!acquired!(resource!investment)!
features!specific!to!locations;!see!Crafts!and!Wolf!(2012).!
10!PresentHday!examples!may!include!the!expansion!of!highHspeed!rail!and!rollout!of!broadband!internet!
access;!see!Crafts!(2004).!11!See!Tang!(2011)!for!an!empirical!analysis!of!technological!leadership!using!firm!genealogical!data.!
! 3!
with!the!rationalization!of!capitalHintensive!production!away!from!smaller!markets!given!
greater!labor!availability!and!lower!transport!costs.!!The!documented!role!of!lowHvalue!
manufacturing!to!early!Japanese!industrialization!suggests!that!this!discrete!change!in!firm!
activity!represents!a!substantive!contribution!of!railroads!to!economic!growth!despite!an!
uneven!distribution!of!activity.!!Discussion!of!these!findings!and!a!number!of!caveats!to!
interpreting!them!follows!in!the!final!section!of!the!paper.!
!
II.!Background!and!motivation!
Railroad!construction!in!Japan!began!with!the!29!kilometer!stretch!between!Tokyo!and!its!
nearest!deepsea!port!Yokohama.!!Two!years!later,!in!1874,!a!similar!length!of!track!was!laid!
between!Osaka!and!the!port!city!Kobe,!approximately!500!kilometers!to!the!west.!!While!the!
government,!which!provided!funding!for!these!projects,!anticipated!that!the!two!major!cities!of!
Tokyo!and!Osaka!would!be!connected!by!rail!in!the!near!future,!it!was!not!until!1889!that!the!
Tokaido!route!between!them!was!finally!completed.12!!!
The!delay!owed!chiefly!to!financing.!!Given!the!costs!of!the!its!modernization!program,!
deteriorating!balance!of!payments,!pacifying!restless!samurai,!and!controlling!inflation,!the!
central!government!found!it!difficult!to!continue!investing!in!railroad!infrastructure.13!It!was!
not!until!the!1880s!that!network!expansion!began!apace,!during!which!the!government!allowed!
the!private!sector!to!enter!the!industry!and!lay!its!own!tracks!in!local!areas!and!other!parts!of!
the!country!not!served!by!the!public!network,!as!shown!in!Table!1.!!Both!public!and!private!
railroads!expanded!methodically,!radiating!away!from!Tokyo!and!Osaka!toward!the!extremities!
of!the!main!island!of!Honshu!and!connecting!major!cities!in!other!prefectures,!as!shown!in!
Figure!1.!!Short!tracks!were!also!laid!on!the!islands!of!Hokkaido,!Shikoku,!and!Kyushu,!which!
tended!to!be!privatelyHowned!and!resource!extraction!oriented.14!!
!
[Table!1!and!Figure!1]!
!
The!motivations!to!build!a!national!railway!system!were!legion:!for!the!government,!
better!transport!infrastructure!meant!centralization!of!political!authority,!national!defense,!and!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!12!The!Tokaido!route!was!one!of!five!major!routes!preHdating!the!Meiji!Period!that!were!extensively!used!
for!long!distance!travel!between!the!administrative!(Tokyo)!and!commercial!(Osaka)!centers!and!outlying!
regions.!
13!Crawcour!(1997),!p.!59,!and!Aoki!et!al!(2000),!p.!11.!!See!also!Free!(2008),!chapter!6,!and!Ericson!
(1996),!chapter!2,!for!greater!discussion!of!the!political!and!economic!context!of!Meiji!railway!financing.!
14!Hokkaido!and!Kyushu!were!major!coal!producing!regions,!which!attracted!private!investment!in!
railway!construction!linked!to!the!mining!industry;!Free!(2008),!pp.!28!and!398H399.!!Shikoku!was!
relatively!resource!poor!and!had!minimal!railway!development!except!around!the!two!ports!of!
Takamatsu!and!Tokushima!(ibid,!p.!28).!!
! 4!
spreading!economic!growth!to!rural!areas.15!!For!the!private!sector,!following!fiscal!
retrenchment!in!the!1880s!and!supported!by!interest!rate!guarantees,!railways!were!also!
viewed!as!a!profitable!venture.16!As!railroad!investments!required!larger!sums!than!could!be!
provided!by!any!single!private!investor,!these!ventures!also!made!active!use!of!the!newly!
established!equity!exchanges.!!To!coordinate!public!objectives!with!private!financing,!the!
government!issued!a!number!of!laws!in!the!1880s!and!1890s!that!standardized!railway!
construction!as!well!as!identified!which!governmentHplanned!lines!could!be!bid!on!by!private!
investors.!!Localities!could!also!petition!for!amendments!or!extensions!after!1892,!when!the!
Railway!Construction!Law!was!passed.!!PublicHprivate!collaboration!continued!until!the!
nationalization!of!major!trunk!lines!between!1906!and!1907,!which!left!only!urban!tramlines!
and!ancillary!extensions!in!the!hands!of!private!investors.!
That!certain!localities!and!sectors!benefitted!from!railway!access!is!readily!documented,!
such!as!the!silk!producing!area!in!central!Nagano!prefecture.!!Following!the!completion!of!the!
Shin’etsu!railroad!between!northern!Nagano!and!TokyoHYokohama!in!1893,!highly!perishable!
raw!silk!could!be!carried!to!the!closest!train!station!40!kilometers!away!instead!of!five!times!
that!distance!to!the!capital.!!When!the!line!was!extended!to!the!Suwa!district!itself,!
"production...increased!dramatically!and!the!coccoon!collection!area!expanded"!to!cover!most!of!
sericultural!area!in!central!Japan.17!!Consumption!of!coal!also!grew!with!the!national!economy!
(and!was!used!by!the!railroad!industry!itself),!which!largely!relied!on!railroad!or!mixed!railHsea!
transport!for!distribution.18!!Countering!these!examples,!however,!is!the!iron!and!steel!sector,!
which!despite!obvious!industrial!linkages!to!rail!construction!and!transport!arguably!did!not!
benefit!from!them!over!most!of!the!Meiji!Period!given!the!location!of!deposits!and!the!initial!
reliance!on!imported!materials.!!Only!following!government!intervention!did!railroads!
contribute!to!the!industry's!growth,!notably!with!the!1907!railway!nationalization!that!
guaranteed!demand!for!domestically!produced!iron!and!steel.19!!!
These!industrial!and!prefectural!differences!relationship!suggest!a!closer!examination!of!
the!relationship!between!Japan’s!expanding!rail!system!and!economic!activity.!!As!shown!in!
Figure!2,!if!one!looks!at!periodHwide!trend!rates!of!rail!network!length,!national!income,!exports,!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!15!Aoki!et!al!(2000),!p.!15;!Crawcour!(1997),!pp.!58H61.!
16!Ibid.!These!considerations!notwithstanding,!given!the!existence!of!coastal!and!riverine!shipping,!
mountainous!terrain,!and!a!system!of!roads!connecting!the!central!cities!to!outer!regions,!it!is!possible!
that!the!spread!of!railroads!did!not!represent!a!fundamental!improvement!in!transportation!access.!!Since!
the!Tokugawa!Period!(1603H1868),!rice!and!fishHmeal!fertilizer!were!shipped!from!the!northern!regions!
and!Hokkaido!to!central!Honshu;!Aoki!et!al!(2000),!p.!5.!Furthermore,!hundreds!of!feudal!nobility!daimyo!paid!biennial!visits!to!Tokyo!as!part!of!their!sankin%kotai!obligations!to!the!ruling!shogunate,!which!promoted!interHregional!transit!and!commerce.!
17!Aoki!et!al!(2000),!pp.!21H22,!and!Ericson!(1996),!p.!42H48.!
18!Ibid.!19!Ibid.,!pp.!32!and!38.!
! 5!
and!the!number!enterprises,!it!is!difficult!to!discern!similar!patterns!between!rail!expansion!and!
the!other!indicators,!especially!given!the!former's!discontinuous!growth.20!!
!
[Figure!2]!
!!
Historical!studies!of!Japanese!railroads!have!typically!eschewed!statistical!analysis,!
however,!and!few!explicitly!estimate!the!railway’s!impact!on!the!economy.21!!This!may!owe!to!a!
lack!of!data!from!this!period;!appropriate!methods!to!test!hypotheses;!or!interest!in!visiting!a!
topic!considered!already!settled.!!Fortunately,!there!is!an!extensive!literature!available!on!this!
subject!for!other!countries,!and!empirical!studies!suggest!that!the!railroad!usually!had!a!positive!
effect!on!economic!welfare!(although!whether!the!impact!is!sufficient!to!drive!growth!is!still!
debated),!as!measured!through!cost!savings,!consumer!surplus,!urbanization,!or!
agglomeration.22!!Many!of!these!studies,!especially!those!using!the!social!savings!approach,!rely!
on!counterfactuals!to!support!the!claim!of!welfare!gains,!which!can!pose!an!epistemological!
problem!in!identifying!causality.23!!
Alternative!methods!have!been!used!to!demonstrate!a!link!between!railroads!and!growth.!!
Donaldson!(2010)!uses!a!general!equilibrium!trade!model!and!highly!detailed!region!price!data!
to!estimate!the!direct!impact!of!an!expanding!railway!system!on!the!colonial!Indian!economy.!!
His!approach!allows!him!to!calculate!reductions!in!trade!costs!and!regional!price!differences!as!
well!as!gains!in!income,!which!he!finds!amounting!to!a!16!percent!increase!due!to!rail!access,!
much!higher!than!Fogel’s!estimate!of!4.7!percent!for!the!United!States!in!1890.!!Atack!et!al!
(2009),!on!the!other!hand,!focus!on!population!growth!and!urbanization!as!possible!
consequences!of!railroad!development,!and!find!evidence!that!railroads!“caused”!urbanization!
in!the!American!Midwest.!!They!do!so!using!a!novel!GISHaugmented!dataset!and!a!differenceHinH
differences!empirical!model!to!compare!preH!and!postHaccess!census!years!in!affected!counties!
against!those!that!remained!unaffected!in!the!mid!1800s.!!In!terms!of!research!design,!this!
paper!is!more!similar!to!the!approach!taken!by!Atack!et!al,!with!the!data!and!methodology!
described!below.!
!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!20!That!said,!the!consequences!of!railroad!construction!may!not!behave!in!a!monotonic!or!linear!fashion.!!
Nonetheless,!the!trend!for!manufacturing!output!is!highly!similar!to!that!for!GDP,!and!is!omitted!from!the!
figure!for!clarity.!
21!That!said,!these!works!provide!a!wealth!of!detail!and!historical!context!and!are!cited!throughout!this!
paper.!
22!A!survey!of!older!literature!on!social!savings!can!be!found!in!O'Brien!(1977),!while!a!more!recent!
discussion!is!Leunig!(2010).!!
23!Besides!a!number!of!assumptions!about!the!elasticity!of!substitution,!actual!and!opportunity!costs,!and!
pricing!behavior,!the!use!of!a!modelHbased!counterfactural!as!a!control!group!renders!long!term!estimates!
more!difficult!to!calculate!reliably.!!Externalities!and!general!equilibrium!effects!are!separate!and!even!
less!tractable!issues.!
! 6!
III.!Research!design!
This!paper!uses!a!new!firmHlevel!dataset!collected!from!corporate!genealogies!and!a!
differenceHinHdifferences!model!to!identify!causality.24!!The!genealogies,!assembled!by!business!
historians!in!the!Shuyo%Kigyo%no%Keifuzu%[Genealogical!Charts!of!Major!Japanese!Firms]!
collection,!are!based!on!company!histories!of!1,089!firms!listed!on!the!Tokyo!Stock!Exchange!in!
1984!and!contain!establishment!entries!dating!back!to!the!nineteenth!century!or!earlier.!
Besides!dates!of!establishment!and!exit!or!reorganization,!each!entry!may!also!provide!the!type!
of!ownership,!an!industry!identifier,!and!the!location!of!establishment.!!To!compare!across!
prefectures!and!between!major!industries!during!the!Meiji!Period,!non!MeijiHera!startups!and!
those!without!both!industry!and!location!are!excluded;!this!decreases!the!number!of!
establishments!to!1,644.!!The!remaining!data!cover!all!47!prefectures!and!are!disaggregated!
into!four!major!industry!categories:!primary!production!and!construction;!manufacturing;!
finance;!and!other!services.!!The!three!latter!groups!can!be!further!classified!into!thirteen!
narrower!categories,!which!are!shown!in!Table!2!along!with!other!summary!statistics.!!The!
sector!that!had!the!largest!relative!change!in!startup!activity!following!rail!access!was!nonH
financial!services,!followed!by!manufacturing,!while!the!greatest!absolute!increase!occured!in!
finance.!!However,!because!railroad!expansion!took!place!over!a!few!decades,!a!simple!
difference!between!the!two!periods!may!be!misleading.!
!
[Table!2]!
!
Before!proceeding!with!statistical!analysis!of!the!data,!it!may!be!useful!to!assess!their!
validity!for!use.!!From!the!table,!it!is!readily!apparent!in!this!dataset!that!banking!by!far!had!the!
highest!number!of!startups!over!the!whole!of!the!Meiji!Period,!followed!by!transport!and!
communication,!and!then!by!textiles.!!The!possible!undercount!of!firms!in!the!primary!and!nonH
finance!tertiary!sectors,!which!usually!predominate!in!nonHindustrial!economies,!may!be!due!to!
the!composition!of!the!corporate!genealogies!that!they!are!drawn!from!(ie,!large!listed!firms),!
and!that!both!manufacturing!and!financial!firms!were!better!documented!historically!than!those!
in!other!sectors,!especially!in!other!services.25!!Many!individual!genealogies!for!a!given!industry!
do,!however,!include!antecedent!firms!in!different!sectors,!which!reduces!the!bias!from!the!
industrial!distribution!of!firms!that!were!listed!in!1984.!
Even!with!possible!representational!bias!between!sectors!in!the!firm!sample,!for!this!
paper’s!analysis,!a!more!relevant!issue!is!whether!the!within!industry!distribution!is!consistent!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!24!Yagura!and!Ikushima!(1986).!
25!Over!half!(627)!of!the!genealogical!collection!are!manufacturing!firms,!while!financial!companies!
number!131.!!As!of!March!2012,!there!are!1,684!firms!listed!in!the!first!tier!(ie,!large!capitalization)!of!the!
Tokyo!Stock!Exchange,!of!which!823!are!classified!as!manufacturing;!see!Tokyo!Stock!Exchange!(2012).!!!
! 7!
over!time!and!location.!!Unfortunately,!there!is!little!documentation!of!firms!at!the!prefectural!
level!prior!to!the!1900s!for!Japan!as!a!whole,!much!less!for!nonHfinancial!sectors!at!a!
subnational!level.!!!Official!comprehensive!statistics!exist!for!banking!at!the!prefectural!level,!
but!only!starting!in!1893,!when!considerable!railroad!expansion!had!already!taken!place.26!!That!
said,!it!may!be!instructive!to!compare!national!aggregates!of!firm!establishment,!and!where!
possible,!more!detailed!series!at!the!sector!or!prefectural!level.!!Table!3!provides!correlation!
results!of!series!based!on!official!statistics!with!that!using!the!genealogical!data.!!
!
[Table!3]!
!
In!the!top!panel,!I!compare!the!Shuyo!genealogical!establishment!series!to!multiple!official!
sources!at!the!national!level.!!The!first!column!includes!annual!number!of!firms!in!three!sectors,!
manufacturing,!commerce,!and!transport,!and!were!collected!by!the!Japanese!Statistical!
Association!for!its!Historical%Statistics%of%Japan!reference!database.27!!The!second!column,!also!
collected!by!the!JSA,!provides!the!number!of!factories!across!various!manufacturing!industries,!
while!the!third!column!contains!banking!data!collected!by!the!Ministry!of!Finance!in!its!Ginko%
Soran![Comprehensive!List!of!Banks]!annual!report.!!The!bottom!panel!of!Table!3!is!at!the!
prefectural!level,!and!compares!the!genealogical!data!against!by!the!Ministry!of!Finance’s!data!
as!well!as!the!Japanese!Bankers!Association!(JBA)!database,!the!latter!including!data!for!the!
whole!of!the!Meiji!Period.28!
The!correlation!results!suggest!a!strong!correspondence!between!the!genealogical!data!
and!official!sources!both!at!the!national!and!prefectural!level.!!In!the!national!series!
comparisons,!all!three!sectoral!series!have!pairwise!correlation!coefficients!exceeding!0.70!in!
firm!counts!between!the!years!1884!and!1912,!and!for!manufacturing!factories,!the!positive!
correlation!improves!to!0.95!in!the!period!1886!to!1908.!!This!is!similar!also!to!the!banking!
series,!which!exceeds!0.99!for!the!years!1893!to!1912.!!For!the!latter!sector,!the!correlation!
between!the!Shuyo!series!and!both!the!Ministry!of!Finance!and!Japanese!Bankers!Association!
series!weakens!slightly!when!disaggregated!by!prefectures,!but!still!exceeds!0.80!across!all!
overlapping!years.!!Moreover,!for!the!entire!Meiji!Period,!correlation!coefficients!for!the!Shuyo!
and!JBA!series!exceed!0.90!in!41!of!the!47!prefectures!at!1!percent!statistical!significance.!!
Assuming!that!genealogical!firm!data!across!all!sectors!were!collected!in!similar!fashion,!this!
indicates!reasonable!confidence!that!the!dataset!is!representative!of!the!Japanese!economy!
during!the!Meiji!Period!and!can!be!used!for!disaggregated!analysis.!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!26!Japan!Ministry!of!Finance!(various).!
27!Japanese!Statistical!Association!(1987),!series!15H5!and!supplementary!series!6H1.!28!Japanese!Bankers!Association!(2012).!
! 8!
Applied!to!the!question!of!railway!impact,!the!genealogical!data!are!aggregated!by!year,!
prefecture,!and!major!industry!to!create!a!balanced!panel!dataset!that!covers!the!entire!Meiji!
Period,!between!1868!and!1912.!!They!are!also!combined!with!railway!data!from!the!Ekimei%
Jiten%[Rail!Stations!in!Japan]!handbook,!published!by!Chuo!Shoin.!!The!handbook!provides!a!
comprehensive!list!of!all!rail!stations!established!in!the!country,!their!founding!dates,!locations!
by!city!and!prefecture,!and!other!identifying!information.!!The!earliest!year!of!station!
establishment!in!each!prefecture!is!used!to!determine!access,!and!is!verified!with!secondary!
sources.29!Prefecture!level!data!on!population!and!geography!come!from!the!Historical%Statistics%
of%Japan,!published!by!the!Japan!Statistical!Association.30!
For!the!empirical!analysis,!the!paper!employs!a!differenceHinHdifferences!methodology,!
comparing!the!number!of!firms!established!during!the!Meiji!Period!in!each!prefecture!before!
and!after!it!gains!access!to!railroads.31!In!line!with!predictions!from!the!economic!geography!
and!transaction!cost!literatures,!the!rationale!is!that!railroad!access!is!a!discrete!change!that!
increases!factor!mobility!through!lower!transportation!costs!and!wider!market!access,!so!firm!
activity!would!corresponding!increase!to!take!advantage!of!these!improvements.!!At!the!same!
time,!it!is!anticipated!that!activity!would!vary!based!on!extant!conditions!like!preHaccess!market!
size,!leading!to!agglomeration!in!larger!markets!and!dispersion!in!smaller!ones.!!As!a!point!of!
reference,!prefectures!that!gain!access!are!compared!to!others!that!did!not!experience!a!
contemporaneous!change!to!their!railroad!infrastructure.!!The!reduced!form!OLS!model!follows,!
with!separate!regressions!for!each!industry!group:!
% yit%=%β0%+%β1⋅x1it%+%β2⋅x2i%+%β3⋅x3t%+%β4⋅x4it%+%εit,!where!
! yit!=!total!number!of!firms!for!prefecture!i!in!year!t%
% x1it!=!rail!access!dummy!variable!for!prefecture!i!in!year!t%
% x2i!=!prefecture!fixed!effect%
% x3t!=!year!fixed!effect%
% x4it!=!interaction!of!control!variables!for!prefecture!i!in!year!t%
% εit!=!error!term%
To!measure!the!effect!on!firm!activity,!the!dependent!variable!yit!is!the!total!annual!
number!of!enterprises!in!each!of!the!prefectures,!indexed!by!i.!!This!number!is!a!net!firm!count!
that!includes!both!new!MeijiHera!startup!establishments!in!the!prefecture!and!those!that!
continue!their!operations;!those!that!changed!location!or!discontinued!activity!are!excluded.!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!29!These!include!Aoki!et!al!(2000),!Ericson!(1996)!and!Free!(2008).!!
30!Prefectural!population!figures!for!1884!were!collected!for!the!month!of!January!while!following!years!
were!for!December;!for!consistency,!the!1884!data!are!dated!as!1883.!
31!Card!and!Krueger!(1994)!is!a!well!known!study!using!this!methodology,!and!Atack!et!al!(2009)!apply!it!
to!their!study!on!nineteenth!century!American!railroads.!!Firms!established!prior!to!the!Meiji!Period!are!
not!included!in!the!dataset.!
! 9!
The!main!control!variable!of!interest!is!the!term!x1it,!which!takes!the!value!of!zero!for!all!years!
prior!to!rail!access!in!prefecture!i!and!the!value!of!one!in!postHaccess!years.!!Additional!control!
variables!include!the!prefectural!population!in!1883,!prefectural!coastline!length,!and!fixed!
effects!for!prefecture!and!year.!!Prefectural!population!can!be!interpreted!as!a!proxy!for!local!
market!demand!and!agglomeration!potential!and!the!ordinal!ranking!among!prefectures!in!
1883!is!consistent!over!the!whole!period!of!analysis.!!One!drawback!of!including!this!variable!is!
that!it!reduces!the!number!of!years!available!for!analysis!as!prefectural!population!data!are!
unavailable!prior!to!1883,!whereas!eleven!prefectures!gained!access!prior!to!1884.32!!
Furthermore,!three!prefectures!gained!access!after!the!Meiji!Period,!and!are!also!excluded!from!
analysis!as!the!genealogical!data!are!collected!only!up!to!1912.!!This!reduces!the!number!of!
prefectures!available!for!analysis!to!33.!!Similarly,!coastline!length!is!used!to!proxy!for!access!to!
coastal!transport,!which!may!act!as!a!substitute!for!rail!transport.!
For!a!causal!interpretation!of!estimates!based!on!the!differenceHinHdifferences!
methodology,!two!conditions!should!be!met.!!The!first!is!in!the!choice!of!control!group!(ie,!
prefectures!that!did!not!gain!railroad!access),!which!must!be!sufficiently!similar!to!the!
treatment!group!in!aspects!aside!from!the!treatment!itself.!!Since!most!prefectures!gained!rail!
access!during!the!Meiji!Period,!this!suggests!that!there!were!no!characteristics!that!predisposed!
them!against!rail!development.33!!Moreover,!outliers!in!access!timing,!such!as!prefectures!that!
gained!access!earliest!(eg,!Tokyo,!Osaka)!and!latest!(eg,!Okinawa),!are!also!excluded!from!the!
analysis!for!the!abovementioned!reasons.!!This!allows!for!division!of!the!prefectures!into!
control!and!treatment!groups!based!on!year!of!access!and!other!timeHinvariant!features.!!Table!
4!provides!the!list!of!prefectures,!their!dates!of!railroad!access,!and!other!characeteristics.!
!
[Table!4]!
!
This!paper!uses!the!year!1893!to!separate!the!prefectures!into!two!groups:!a!treatment!
group!of!18!prefectures!that!gained!access!between!1884!and!1893,!and!a!control!group!of!15!
prefectures!that!gained!access!between!1894!and!1912.34!!This!year!was!selected!as!it!precedes!
the!First!SinoHJapanese!War!(1894H1895),!which!contributed!to!a!dramatic!expansion!of!the!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!32!These!prefectures!include!Tokyo,!Kanagawa,!Hyogo,!Osaka,!Kyoto,!Hokkaido,!Shiga,!Fukui,!Saitama,!
Gunma,!and!Gifu.!!Note!that!prefectures!gaining!access!in!1883!also!not!included!as!they!would!appear!to!
have!been!treated!for!the!entire!period!starting!that!year.!33!This!may!not!have!been!true!for!three!prefectures!that!gained!railroad!access!after!the!Meiji!Period:!
Ehime!(1914),!Kochi!(1924),!and!Okinawa!(2003).!!These!prefectures!are!also!off!the!main!island!of!
Honshu,!where!most!commercial!activity!took!place!and!government!policy!was!focused.!!
34!The!eighteen!prefectures!in!the!treatment!group!include!Aichi,!Aomori,!Ibaraki,!Fukuoka,!Fukushima,!
Hiroshima,!Iwate,!Kagawa,!Kumamoto,!Mie,!Miyagi,!Nagano,!Nara,!Niigata,!,!Okayama,!Saga,!Shizuoka,!and!
Tochigi.!The!fifteen!prefectures!in!the!control!group!include!Akita,!Chiba,!Ishikawa,!Kagoshima,!Miyazaki,!
Nagasaki,!Oita,!Shimane,!Tokushima,!Tottori,!Toyama,!Wakayama,!Yamagata,!Yamaguchi,!and!Yamanashi.!
! 10!
public!investment!in!armaments!and!public!works!with!possible!knockHon!effects!to!firm!
activity;!and!it!divides!the!set!of!prefectures!into!numerically!similar!groups.!!Analysis!of!these!
two!groups!is!based!on!changes!in!firm!activity!between!1884!and!1893.!!These!groups!are!
shown!on!the!map!of!Japan!in!Figure!3!along!with!those!excluded!from!analysis.!
!
[Figure!3]!
!
The!second!condition!for!a!causal!interpretation!is!that!the!decision!to!extend!the!railway!
network!itself!is!not!itself!determined!by!the!measured!outcome!of!firm!establishment.!!In!other!
words,!entrepreneurs!intending!to!establish!firms!or!maintain!operations!should!not!influence!
the!decision!to!expand!rail!access!to!a!particular!location.!!This!appears!to!be!valid!since!the!
government’s!objective!to!railroad!expansion!at!the!start!of!the!Meiji!Period!was!for!national!
security!and!resource!access,!not!commercial!development.35!!Extensions!of!the!railway!system!
north!and!west!in!Honshu!connected!population!centers!usually!along!the!most!geographically!
and!cost!efficient!paths!and!were!meant!to!(and!did)!facilitate!troop!movements!and!securing!
the!Pacific!coastline.36!!Moreover,!local!and!commercial!lobbying!for!the!placement!of!railroad!
track!was!also!not!observed!prior!to!the!creation!of!the!national!parliament!in!1890!and!the!
aforementioned!passage!of!the!1892!Railway!Construction!law,!which!presented!the!
government’s!vision!of!a!national!railway!system!and!proposed!lines!identified!for!private!
investment.37!!!
To!address!concerns!about!control!group!selection!and!endogeneity,!additional!
specifications!exclude!prefectures!that!have!correlation!coefficients!less!than!0.90!in!the!
banking!series!comparison;!those!that!are!landlocked!or!have!long!coastlines!(over!1,000!
kilometers);!and!those!with!disproportionately!small!or!large!surface!areas!(outside!one!
standard!deviation!of!the!average!of!prefectures!in!the!control!and!treatment!groups).!!The!first!
robustness!check!addresses!concerns!that!the!data!are!not!representative!of!official!statistics,!
while!the!latter!two!remove!outliers!in!the!availability!of!coastal!transport!and!ease!of!railway!
construction,!respectively.!!
!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!35!The!disinterest!in!(or!ignorance!of)!commercial!viability!is!highlighted!by!the!lack!of!costHrevenue!
analysis!made!by!the!government!in!its!early!railway!ventures!and!the!large!cost!overruns!in!the!first!
railroad!between!Tokyo!and!Yokohama!(Free,!2008,!p.!55).!!See!also!Yamamoto!(1993),!chapters!1!
through!3.!36!This!was!true!even!in!the!late!Tokugawa!Period,!with!proposals!to!build!a!railroad!from!Osaka!to!the!
then!imperial!capital!Kyoto!so!as!to!"speed!troops!from!the!Choshu!and!Satsuma!domains!in!the!south!
[via!steamer!to!Osaka]!in!the!event!of!an!emergency!to!`defend'!the!Emperor!from!colonizing!foreigners"!
(Free,!2008,!p.!29).!
37!"[I]n!railroad!policy,!government!bureaucrats!essentially!had!the!field!to!themselves!and!were!able!to!
make!decisions!independently!of!private!business,!which!had!yet!to!organize!politically!or!to!secure!
formal!representation!in!the!national!government"!(Ericson,!1996,!p.!16).!!See!also!Free!(2008),!p.!21.!
! 11!
IV.!Results!
The!main!regression!results!from!the!differenceHinHdifferences!analysis!are!presented!in!
Tables!5!and!6,!the!former!comparing!estimates!of!firm!activity!aggregated!across!all!sectors!
and!the!latter!by!major!industry!group.!In!Table!5,!columns!A!through!C!include!all!prefectures!
that!gained!access!to!railroads!between!the!years!1884!and!1912,!and!indicate!that!rail!access!is!
associated!with!an!average!prefectural!net!increase!of!between!2.19!(column!B)!and!2.60!
(column!C)!firms!per!year.38!!These!estimates,!however,!do!not!identify!rail!access!as!a!causal!
factor!and!may!obtain!from!a!general!increase!in!economic!activity!and!population!since!all!
prefectures!gained!access!over!the!period.!!When!the!period!of!analysis!is!shortened!to!create!a!
control!group!(columns!D!through!F),!the!net!increase!in!the!number!of!firms!following!rail!
access!is!more!modest,!from!0.46!(column!E)!to!0.51!(column!F).!!Nevertheless,!given!the!
average!number!of!firms!by!prefecture!without!rail!access!for!this!period!is!3.75,!the!lower!
bound!for!a!net!increase!in!activity!due!to!rail!access!is!approximately!12!percent.!!In!terms!of!
the!difference!in!average!firm!activity!before!and!after!rail!access,!this!represents!23!percent!of!
the!total!increase.!
[Tables!5!and!6]!
!
This!overall!positive!effect!notwithstanding,!when!population!is!interacted!with!rail!
access!(columns!E!and!F),!the!individual!effect!of!rail!access!(row!1)!is!negative!and!statistically!
significant!while!the!estimated!coefficient!on!the!interaction!is!positive!(row!3).!!This!indicates!a!
decrease!in!firm!activity!in!prefectures!with!less!than!around!700,000!inhabitants!in!1883,!
which!is!true!for!seven!of!the!eighteen!prefectures!in!the!treatment!group!for!all!years!between!
1884!and!1893.39!!Based!on!the!coefficients!in!column!F!and!an!average!of!1.91!firms!per!year!
for!these!least!populated!areas,!the!annual!net!loss!of!0.56!firms!represents!a!29!percent!fall!in!
firm!activity.!!Also!of!interest!is!that!while!its!coefficient!is!consistently!negative!across!
specifications,!the!interaction!of!rail!access!and!coastline!length!is!never!statistically!significant,!
which!suggests!little!impact!from!the!former!on!firm!activity!even!in!areas!with!greater!access!
to!coastal!transport.!
The!results!in!Table!6!disaggregate!firm!activity!by!industry,!and!show!that!the!change!in!
firm!activity!is!largely!due!to!the!manufacturing!sector!(column!B),!particularly!in!textiles!
(column!E).!!All!else!equal,!manufacturing!firm!activity!in!treatment!prefectures!increased!by!
0.44!firms,!which!accounts!for!33!percent!of!firm!activity!following!rail!access.!!In!textiles,!the!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!38!This!is!calculated!using!the!average!1883!prefectural!population!of!824,149!for!prefectures!that!gained!
rail!access!over!the!period!1884!through!1912.!!For!the!years!1884!through!1893,!the!mean!population!is!
854,448.!
39!These!seven!prefectures!are!Aomori,!Kagawa,!Iwate,!Miyagi,!Nara,!Saga,!and!Tochigi,!each!averaging!
610,783!in!population!over!this!period.!
! 12!
increase!is!0.27!firms!per!annum,!which!is!nearly!43!percent!of!postHrail!firm!counts.!
To!consider!the!impact!of!rail!access!on!the!change!in!firm!numbers!instead!of!the!stock!of!
firms,!I!also!use!the!first!difference!of!annual!firm!counts!as!the!dependent!variable.!!As!shown!
in!Table!7,!rail!access!is!only!significant!when!interacted!with!population!in!textiles!(column!E)!
and!to!a!lesser!extent!services!(column!D).!!This!suggests!that!along!with!an!absolute!impact!on!
firm!activity!shown!in!previous!tables,!rail!access!corresponds!to!a!continuous!increase!in!
startup!activity!and!firm!survival!(ie,!industry!expansion)!in!these!sectors.!
!
[Table!7]!
!
To!check!the!robustness!of!the!above!estimates,!a!number!of!different!specifications!are!
used!and!shown!in!Tables!8!through!10.!!The!first!check!limits!analysis!to!prefectures!that!had!
correlation!coefficients!exceeding!0.90!when!comparing!the!genealogical!bank!series!against!the!
Japanese!Bankers!Association!series.!!Consistent!with!the!earlier!estimates,!rail!access!accounts!
corresponds!to!an!increase!in!firm!activity!across!all!sectors!(column!A)!of!0.45,!which!
represents!26!percent!of!the!increase!between!the!preH!and!postHrail!access!periods.!!Again,!the!
effect!is!concentrated!in!manufacturing!(textiles),!which!accounts!for!56!percent!(58!percent)!of!
the!increase!in!total!firm!activity!between!periods.!
!!
[Table!8]!
!
To!improve!the!correspondence!between!prefectures!in!both!control!and!treatment!
groups,!those!that!were!landlocked!or!had!coastlines!exceeding!1,000!kilometers!are!excluded!
from!the!estimates!reported!in!Table!9.40!!As!before,!the!general!effect!of!rail!access!is!negative!
and!the!interaction!with!population!is!positive,!with!the!average!annual!firm!count!increasing!
by!0.52,!or!20!percent!of!the!increase!between!preH!and!postHrail!periods.!!Manufacturing!and!
services!all!experience!a!net!gain!in!firms!following!rail!access,!and!for!the!latter,!the!interaction!
with!coastline!length!is!positive!and!slightly!statistically!significant.!!More!dramatically,!for!
textiles!the!increase!accounts!for!nearly!73!percent!of!level!change!between!periods.!!
!
[Table!9]!
!
Lastly,!given!the!importance!of!surface!area!to!railroad!construction!and!timing,!I!use!the!
subset!of!prefectures!that!have!surface!areas!within!one!standard!deviation!of!the!average!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!40!The!excluded!prefectures!are!Hiroshima,!Kagoshima,!Kumamoto,!Mie,!Nagano,!Nagasaki,!Nara,!Tochigi,!
Yamaguchi,!and!Yamanashi.!
! 13!
across!control!and!treatment!groups!to!limit!the!impact!of!outliers!within!the!control!and!
treatment!groups.!!The!results!are!qualitatively!consistent!with!earlier!results,!showing!that!
firm!activity!rose!across!all!sectors!by!1.06!firms!per!annum,!or!44!percent!of!the!level!increase!
between!periods.!In!manufacturing,!the!increase!is!0.68!firms!(68!percent),!while!in!textiles!it!is!
0.36!firms!(80!percent).!!!
[Table!10]!
!
V.!Conclusion!and!discussion!
The!findings!from!the!differenceHinHdifferences!analysis!suggest!that!rail!access!has!a!
positive!impact!on!firm!activity!for!the!economy!in!general,!although!there!are!notable!
differences!between!prefectures!and!industries.!!Manufacturing,!compared!to!other!sectors,!
experienced!substantial!increases!in!firm!activity!following!access!after!adjusting!for!initial!
prefectural!population.!!Furthermore,!the!opposing!signs!on!rail!access!and!its!interaction!with!
population!suggests!that!industrial!agglomeration,!measured!in!the!number!of!firms,!took!place!
as!a!response!to!the!railroad!and!came!at!the!expense!of!less!populated!areas.!
There!are!a!number!of!caveats!to!taking!these!results!at!face!value,!however.!!The!first!
relates!to!the!dataset,!which!despite!having!a!larger!number!of!historically!undocumented!firms!
than!existing!sources,!may!be!small!to!give!precise!estimates.!!Since!the!1,644!startup!firms!in!
the!dataset!only!include!firms!that!started!up!during!the!Meiji!Period,!the!analysis!ignores!the!
contribution!of!firms!existing!prior!to!1868.!!Furthermore,!more!than!900!additional!firms!were!
excluded!from!the!analysis!as!they!either!had!no!industry!or!location!identifiers.!!Considering!
that!the!prefectures!with!the!most!economic!activity,!Tokyo!and!Osaka,!were!also!excluded!
given!their!early!acquisition!of!railroads,!also!diminishes!the!generalizability!of!the!results!to!
the!economy!in!absolute!measure.!!
The!issue!of!data!selection!aside,!the!findings!of!increased!firm!activity,!particularly!in!
manufacturing,!and!of!agglomeration!are!perhaps!not!obvious!given!features!of!the!Meiji!
Japanese!economy!and!existing!infrastructure.41!!While!entrepreneurs!may!have!started!and!
continued!operations!as!a!result!of!improved!transport!links!and!wider!markets,!it!can!be!
argued!that!extensive!measures!of!firm!activity!are!not!representative!of!higher!capital!intensity!
and!withinHfirm!scale!expansion.!!Using!firm!counts!that!account!for!firm!entry!and!exit!may!not!
adequately!address!this!concern.!!!
Furthermore,!dispersive!forces!seem!as!likely!to!operate!since!entrepreneurs!may!not!be!
able!to!fully!capitalize!on!improved!transportation!infrastructure!for!industrial!production.!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!41!That!said,!research!on!early!twentieth!century!Japanese!factory!location!suggests!that!agglomeration!
took!place!due!to!interHindustry!linkages!and!demand!for!consumption!goods;!see!Imaizumi!(2008).!!
These!data,!however,!postdate!most!of!the!railway!expansion!era,!so!do!not!directly!implicate!railroad!
access!itself!as!a!determining!factor,!although!changes!in!rail!freight!may!have!been!influential.!
! 14!
Contributing!factors!include!private!monopolies!of!regional!track!and!the!precedence!of!
passenger!over!freight!traffic,!which!led!to!excess!demand!for!freight!services.42!!A!consequence!
of!this!meant!that!railways!were!not!obliged!to!provide!discounts!for!bulk!shipping,!and!thus!
reduced!the!incentive!to!produce!more!than!what!was!locally!demanded,!which!is!one!of!the!
qualifications!of!the!Krugman!model.43!!The!availability!of!coastal!freight,!which!was!extensively!
used!prior!and!throughout!Japan's!industrialization,!may!weaken!the!relevance!of!newer!forms!
of!freight!transport,!although!the!above!analysis!attempts!to!account!for!this!factor.44!!Possible!
complementarity!across!types!of!transport!can!be!seen!in!the!revenues!earned!by!private!
railways,!where!earnings!from!passengers!exceeded!those!of!freight!for!every!year!since!1890!
until!their!nationalization!in!1906H07.45!!Thus,!a!general!equilibrium!model!that!accounts!for!
some!of!these!features!may!provide!clearer!predictions!for!this!setting.!
In!terms!of!economic!significance,!the!differenceHinHdifferences!methodology!using!
startup!establishment!has!the!advantages!of!clear!explication!and!direct!measurement!of!
industrial!activity.!!!This!approach!also!allows!analysis!that!does!not!require!price!and!output!
data,!which!are!difficult!to!find!at!the!subnational!level.!!Taking!the!next!step!of!measuring!
welfare!impact,!however,!is!less!tractable!without!more!detailed!data.!!While!some!scholarship!
directly!links!entrepreneurship!and!economic!growth,!the!findings!in!this!paper!are!only!
suggestive.46!!In!contrast,!studies!using!the!social!savings!approach!incorporate!price!
information!can!estimate!welfare!gains!for!the!economy!as!a!whole.!!If!disaggregated!price!data!
can!be!found!prior!to!and!following!rail!access,!it!may!be!possible!to!apply!the!same!differenceH
onHdifferences!approach!but!also!measure!welfare!improvement.!
With!these!caveats!in!mind,!the!empirical!results!from!the!current!analysis!are!still!
suggestive!in!adding!to!our!understanding!about!the!impact!of!railways!on!Meiji!Japanese!firm!
activity,!and!in!turn,!the!country’s!industrialization.!!While!the!aims!of!the!government!and!
industrialists!may!not!have!been!necessarily!aligned!in!motivating!the!expansion!of!the!railroad!
network,!the!utility!of!such!infrastructure!for!both!strategic!and!economic!objectives!became!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!42!Nagao!(1929),!pp.!18H19.!43!Free!(2008)!writes:!"[s]uch!was!the!excess!demand!for!railway!shipment!of!goods!that!when!one!
particular!shipper!asked!for!a!discount!from!the![privatelyHowned]!Nippon!Tetsudo,!the!general!manager!
would!not!allow!for!any!discount!at!all!if!the!shipper!shipped!10,000!tons!of!freight!or!100,000!tons.!!
Freight!hauling!concerns!took!second!priority!to!passenger!traffic!for!almost!the!entire!Meiji!era"!(p.!187).!!
Krugman!(1991a)!states!that!a!combination!of!lower!transport!costs,!scale!economies,!and!greater!
demand!for!manufacturing!would!lead!to!agglomeration.!!However,!even!with!falling!transport!costs,!it!
may!be!that!local!characteristics!still!prevail!in!determining!industrial!location;!see!Crafts!and!Mulatu!
(2006).!
44!Nagao!(1929)!writes!that!the!inversion!of!the!passengerHfreight!revenue!ratio!compared!to!other!
countries!"is!partly!due!to!the!circumstance!that!Japan,!being!surrounded!by!seas,!can!avail!herself!more!
readily!of!the!facilities!of!maritime!transportation"!(p.!9).!!At!the!same!time,!rail!freight!could!have!
positive!feedback!on!sea!freight,!and!thus!act!as!complements!instead!of!substitutes.!
45!Japan!Statistical!Association!(1987),!series!8H20.!!!46!See!for!example!Gries!and!Naudé!(2008)!and!Dejardin!(2000).!
! 15!
increasingly!obvious,!ultimately!leading!to!the!nationalization!of!the!network!toward!the!end!of!
the!Meiji!Period.!
!
References!
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Economic!Growth.”!LSE!Working!Paper!06/04.!London,!United!Kingdom:!London!School!of!
Economics.!
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Economic%Emergence%of%Modern%Japan.!Kozo!Yamamura,!ed.!!Cambridge,!United!Kingdom:!
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! 17!
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http://www.tse.or.jp/english/listing/index.html.!!
Yagura,!Shintaro!and!Yoshiro!Ikushima!(1986).!Shuyo%Kigyo%no%Keifuzu![Genealogical!Chart!of!
Major!Japanese!Companies].!Japanese!language!text.!Tokyo,!Japan:!Yushodo!Publishing.!
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Transportation%in%Japan.!Tokyo,!Japan:!United!Nations!University!Press.
! 18!
Figure'1:'Japanese'rail'network'expansion'
!
! !
! 1877! 1887!
! ! !
!
!
! ! 1897! ! 1907!
! ! !
!
! Source:!see!text.!
! 19!
!
Figure'2:'Meiji8era'trends'of'economic'indicators'
!
!
!
!
Source:!Japan!Statistical!Association!(1987),!series!8H4,!10H1,!13H3,!and!15H5.!
!
Note:!values!reported!in!logs!with!the!following!units:!rail!length!(kilometers),!GDP!and!exports!(millions!
of!yen,!current!value),!and!enterprises!(total).!
! 20!
!
Figure'3:'Difference8in8differences'groups'
!
!
!
! Source:!see!text.
! 21!
!
!
!
!
' Table'1:'Length'of'Japanese'rail'network,'kilometers'
Year! Public! Privatea! Total!
1872! 29! 0! 29!
1877! 105! 0! 105!
1882! 185! 0! 185!
1887! 393! 472! 865!
1892! 886! 2,125! 3,011!
1897! 1,065! 3,681! 4,746!
1902! 1,974! 5,398! 7,372!
1907! 7,152! 1,568! 8,720!
1912! 8,396! 2,988! 11,384!
Source:!Japan!Statistical!Association!(1987),!series!8H4!and!8H14.!a!includes!longHdistance!and!local!rail/tram!networks!
Table'2:'Descriptive'statistics'! Total! PreHrail!access! PostHrail!access!
Number!of!startups! 1,644' 339' 1,305'Primary!production! 65' 14' 51'Manufacturing! 462' 60' 402'
!!Ceramic,!glass! 32! 5! 27!
!!Chemicals! 80! 1! 79!
!!Food!processing! 53! 11! 42!
!!Machinery! 70! 8! 62!
!!Metal!processing! 41! 3! 38!
!!Textiles! 142! 25! 117!
!!Wood!processing! 42! 7! 35!
!!Other!manufacturing! 2! 0! 2!
Finance! 870' 250' 620'!!Banking! 757! 213! 544!
!!Other!finance! 113! 37! 76!
Services! 247' 15' 232'
!!Retail! 64! 7! 57!
!!Transport!and!utilities! 171! 6! 165!
!!Other!services! 12! 2! 10!
Source:!author’s!calculations;!see!text.!
! 22!
!
!
'Table'3:'Correlations'
Shuyo!establishments,!national! HSJ!firms!
1884H1912!
HSJ!factories!
1886H1908!
GS!banks!
1893H1912!
Manufacturing! 0.751!
(29)!
0.948!
(23)!
!
!
Retail!and!commerce! 0.716!
(29)!
!
! !
Transport!and!utilities! 0.920!
(29)!
!
! !
Banking! ! ! 0.994!
(20)!
!
Shuyo!establishments,!prefectural! GS!banks!
1893H1912!
JBA!banks!
1893H1912!
JBA!banks!
1868H1912!
Banking!
!
0.828!
(940)!
!
0.831!
(940)!
0.875!
(2,115)!
Source:!Japanese!Statistical!Association!(1987),!Ministry!of!Finance!(various),!Japanese!Bankers!
Association!(2012),!Tang!(2013);!see!text.!
Note:!all!correlation!coefficients!are!statistically!significant!at!the!1!percent!level!;!number!of!
observations!in!parentheses.!
! 23!
!
Table'4:'Prefecture'statistics'! Rail!access!year! Population!(1883)! Coastline!(km)! Surface!area!(km2)!
Japan' ' 37,451,800' 33,889' 381,808'
Aichi! 1886! 1,364,400! 548! 5,055!
Akita! 1899! 639,500! 304! 11,724!
Aomori! 1891! 490,600! 744! 9,631!
Chiba! 1894! 1,107,500! 535! 5,079!
Ehime! 1914! 868,320! 1,533! 5,699!
Fukui! 1882! 580,600! 397! 4,018!
Fukuoka! 1889! 1,133,800! 589! 4,940!
Fukushima! 1887! 854,700! 191! 13,782!
Gifu! 1883! 869,100! 0! 10,462!
Gunma! 1883! 629,600! 0! 6,315!
Hiroshima! 1891! 1,256,600! 1,113! 8,437!
Hokkaido! 1880! 227,900! 4,377! 88,454!
Hyogo! 1874! 1,442,600! 783! 8,427!
Ibaraki! 1885! 925,400! 186! 6,100!
Ishikawa! 1897! 732,600! 581! 4,198!
Iwate! 1890! 613,300! 661! 15,235!
Kagawa! 1889! 639,980! 694! 1,845!
Kagoshima! 1900! 933,800! 2,722! 9,081!
Kanagawa! 1872! 650,405! 400! 2,352!
Kochi! 1924! 545,200! 691! 7,088!
Kumamoto! 1891! 1,000,000! 1,068! 7,438!
Kyoto! 1876! 845,500! 310! 4,559!
Mie! 1890! 874,900! 1,105! 5,702!
Miyagi! 1887! 643,400! 846! 7,287!
Miyazaki! 1911! 381,500! 445! 7,738!
Nagano! 1888! 1,040,100! 0! 13,557!
Nagasaki! 1897! 704,500! 4,137! 4,116!
Nara! 1890! 469,539! 0! 3,730!
Niigata! 1886! 1,583,400! 585! 12,579!
Oita! 1897! 750,100! 725! 6,225!
Okayama! 1890! 1,035,000! 539! 7,019!
Okinawa! 2003! 364,400! 1,652! 2,387!
Osaka! 1874! 1,163,261! 223! 1,814!
Saga! 1889! 518,600! 357! 2,444!
Saitama! 1883! 980,100! 0! 3,804!
Shiga! 1880! 634,600! 0! 4,051!
Shimane! 1908! 677,500! 814! 6,618!
Shizuoka! 1888! 975,900! 514! 7,770!
Tochigi! 1885! 623,100! 0! 6,448!
Tokushima! 1899! 649,300! 363! 4,135!
Tokyo! 1872! 1,325,295! 760! 2,142!
Tottori! 1902! 380,200! 144! 3,489!
Toyama! 1897! 700,700! 117! 4,257!
Wakayama! 1898! 610,800! 628! 4,733!
Yamagata! 1901! 704,500! 0! 4,455!
Yamaguchi! 1899! 894,900! 110! 9,306!
Yamanashi! 1897! 414,800! 1,398! 6,082!
Source:!Japanese!Statistical!Association!(1987).!
! 24!
!!!!!
Table!5:!Difference/in/differences!results,!all!industries!DV:!Number!of!firms! [A]! [B]! [C]! [D]! [E]! [F]!Rail!access!!!
1.087!(1.022)!
C8.762**!(3.725)!
C8.548**!(3.481)!
0.429!(0.488)!
C2.862***!(1.014)!
C2.705***!(0.979)!
Rail!x!1883!Population!(103)!!!
! 1.329***!(0.475)!
1.500***!(0.461)!
! 0.389**!(0.148)!
0.405**!(0.150)!
Rail!x!Coastline!(103!km)!!!
! ! C1.847!(1.119)!
! ! C0.526!(0.789)!
Constant!!!
3.909***!(0.825)!
3.909***!(0.677)!
3.909***!(0.664)!
3.909***!(0.192)!
3.909***!(0.189)!
3.909***!(0.192)!
Control/treatment!prefectures!!
n/a! n/a! n/a! 15/18! 15/18! 15/18!
Year!coverage!!
1884C1912! 1884C1912! 1884C1912! 1884C1893! 1884C1893! 1884C1893!
Observations!!
957! 957! 957! 330! 330! 330!
R2! 0.577! 0.621! 0.633! 0.187! 0.281! 0.284!Source:!see!text.!Significance!levels:!*10%,!**5%,!***1%!Note:!!all!specifications!include!prefecture!and!year!fixed!effects.!!Robust!standard!errors!are!clustered!by!prefecture.!!!
!
! 25!
!!!!!!
Table!6:!Difference/in/differences!results,!major!industry!groups!DV:!Number!of!firms! ! [A]!
All!sectors![B]!
Manufacturing![C]!
Finance![D]!
Services![E]!
Textiles!(Mfg)!Rail!access!!!
! C2.705***!(0.979)!
C1.433***!(0.363)!
C0.906*!(0.496)!
C0.253*!(0.141)!
C0.824***!(0.278)!
Rail!x!1883!Population!(103)!!!
! 0.405**!(0.150)!
0.225***!(0.047)!
0.101!(0.077)!
0.032*!(0.017)!
0.149***!(0.042)!
Rail!x!Coastline!(103!km)!!!
! C0.526!(0.789)!
C0.114!(0.274)!
C0.120!(0.359)!
C0.084!(0.078)!
C0.380!(0.231)!
Constant!!!
! 3.909***!(0.192)!
0.576***!(0.083)!
3.030***!(0.095)!
0.091***!(0.027)!
0.242***!(0.060)!
Control/treatment!prefectures!!
! 15/18! 15/18! 15/18! 15/18! 15/18!
Year!coverage!!
! 1884C1893! 1884C1893! 1884C1893! 1884C1893! 1884C1893!
Observations!!
! 330! 330! 330! 330! 330!
R2! ! 0.284! 0.308! 0.118! 0.072! 0.274!Source:!see!text.!Significance!levels:!*10%,!**5%,!***1%!Note:!!all!specifications!include!prefecture!and!year!fixed!effects.!!Robust!standard!errors!are!clustered!by!prefecture.!!!
!
! 26!
!!!!!!! ! Table!7:!Difference/in/differences!results,!net!firm!growth!DV:!Change!to!number!of!firms! ! [A]!
All!sectors![B]!
Manufacturing![C]!
Finance![D]!
Services![E]!
Textiles!(Mfg)!Rail!access!!!
! C0.567!(0.484)!
C0.308!(0.298)!
C0.149!(0.233)!
C0.089**!(0.041)!
C0.279!(0.175)!
Rail!x!1883!Population!(103)!!!
! 0.064!(0.062)!
0.046!(0.046)!
C0.002!(0.039)!
0.011*!(0.006)!
0.043**!(0.019)!
Rail!x!Coastline!(103!km)!!!
! C0.066!(0.282)!
C0.054!(0.154)!
0.015!(0.146)!
C0.014!(0.028)!
0.038!(0.110)!
Constant!!!
! 0.271!(0.309)!
0.062!(0.100)!
0.262!(0.181)!
0.031!(0.034)!
0.034!(0.068)!
Control/treatment!prefectures!!
! 15/18! 15/18! 15/18! 15/18! 15/18!
Year!coverage!!
! 1884C1893! 1884C1893! 1884C1893! 1884C1893! 1884C1893!
Observations!!
! 330! 330! 330! 330! 330!
R2! ! 0.046! 0.034! 0.048! 0.030! 0.086!Source:!see!text.!Significance!levels:!*10%,!**5%,!***1%!Note:!!all!specifications!include!prefecture!and!year!fixed!effects.!!Robust!standard!errors!are!clustered!by!prefecture.!!!
! 27!
!!
!!!!!
Table!8:!Difference/in/differences!robustness!check,!JBA!correlation!DV:!Number!of!firms! ! [A]!
All!sectors![B]!
Manufacturing![C]!
Finance![D]!
Services![E]!
Textiles!(Mfg)!Rail!access!!!
! C2.941**!(1.080)!
C1.536***!(0.386)!
C0.976*!(0.526)!
C0.278*!(0.157)!
C0.852***!(0.300)!
Rail!x!1883!Population!(103)!!!
! 0.413**!(0.153)!
0.230***!(0.047)!
0.102!(0.078)!
0.033*!(0.017)!
0.150***!(0.043)!
Rail!x!Coastline!(103!km)!!!
! C0.321!(0.848)!
0.021!(0.281)!
C0.116!(0.378)!
C0.055!(0.082)!
C0.370!(0.260)!
Constant!!!
! 4.276***!(0.217)!
0.655***!(0.095)!
3.276***!(0.108)!
0.103***!(0.031)!
0.276***!(0.068)!
Control/treatment!prefectures!!
! 12/17! 12/17! 12/17! 12/17! 12/17!
Year!coverage!!
! 1884C1893! 1884C1893! 1884C1893! 1884C1893! 1884C1893!
Observations!!
! 290! 290! 290! 290! 290!
R2! ! 0.301! 0.320! 0.129! 0.081! 0.278!Source:!see!text.!Significance!levels:!*10%,!**5%,!***1%!Note:!!all!specifications!include!prefecture!and!year!fixed!effects.!!Robust!standard!errors!are!clustered!by!prefecture.!!Prefectures!from!the!control!and!treatment!groups!are!limited!to!those!with!correlation!coefficients!exceeding!0.90!based!on!the!Japanese!Bankers!Association!series.!
!
! 28!
!!!!!!
Table!9:!Difference/in/differences!robustness!check,!coastline!restriction!DV:!Number!of!firms! ! [A]!
All!sectors![B]!
Manufacturing![C]!
Finance![D]!
Services![E]!
Textiles!(Mfg)!Rail!access!!!
! C6.369**!(2.705)!
C2.619***!(0.844)!
C2.222*!(1.204)!
C0.556***!(0.198)!
C1.764**!(0.677)!
Rail!x!1883!Population!(103)!!!
! 0.626**!(0.251)!
0.285***!(0.074)!
0.178!(0.129)!
0.053***!(0.018)!
0.191***!(0.068)!
Rail!x!Coastline!(103!km)!!!
! 2.804!(2.163)!
1.042!(0.704)!
1.081!(1.025)!
0.172*!(0.098)!
0.730!(0.480)!
Constant!!!
! 3.913***!(0.244)!
0.391***!(0.100)!
3.174***!(0.126)!
0.043!(0.024)!
0.130*!(0.067)!
Control/treatment!prefectures!!
! 11/12! 11/12! 11/12! 11/12! 11/12!
Year!coverage!!
! 1884C1893! 1884C1893! 1884C1893! 1884C1893! 1884C1893!
Observations!!
! 230! 230! 230! 230! 230!
R2! ! 0.394! 0.388! 0.164! 0.174! 0.374!Source:!see!text.!Significance!levels:!*10%,!**5%,!***1%!Note:!!all!specifications!include!prefecture!and!year!fixed!effects.!!Robust!standard!errors!are!clustered!by!prefecture.!!Prefectures!from!the!control!and!treatment!groups!are!limited!to!those!with!coastlines!between!1!and!1,000!kilometers!in!length.!
!
! 29!
!!!!!!
Table!10:!Difference/in/differences!robustness!check,!surface!area!restriction!DV:!Number!of!firms! ! [A]!
All!sectors![B]!
Manufacturing![C]!
Finance![D]!
Services![E]!
Textiles!(Mfg)!Rail!access!!!
! C2.352***!(0.825)!
C1.234***!(0.290)!
C0.910*!(0.530)!
C0.269*!(0.148)!
C0.769***!(0.254)!
Rail!x!1883!Population!(103)!!!
! 0.511***!(0.181)!
0.249***!(0.054)!
0.148!(0.104)!
0.042**!(0.019)!
0.166***!(0.054)!
Rail!x!Coastline!(103!km)!!!
! C2.106**!(0.903)!
C0.527!(0.331)!
C0.749!(0.590)!
C0.198*!(0.106)!
C0.640*!(0.347)!
Constant!!!
! 3.654***!(0.246)!
0.654***!(0.105)!
2.731***!(0.120)!
0.077**!(0.034)!
0.231***!(0.079)!
Control/treatment!prefectures!!
! 10/16! 10/16! 10/16! 10/16! 10/16!
Year!coverage!!
! 1884C1893! 1884C1893! 1884C1893! 1884C1893! 1884C1893!
Observations!!
! 260! 260! 260! 260! 260!
R2! ! 0.352! 0.351! 0.167! 0.092! 0.285!Source:!see!text.!Significance!levels:!*10%,!**5%,!***1%!Note:!!all!specifications!include!prefecture!and!year!fixed!effects.!!Robust!standard!errors!are!clustered!by!prefecture.!!Prefectures!from!the!control!and!treatment!groups!are!limited!to!those!with!surface!areas!within!one!standard!deviation!of!the!prefectural!average.!
!!